[Congressional Record Volume 145, Number 77 (Wednesday, May 26, 1999)]
[Senate]
[Pages S6067-S6068]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself and Mr. Graham):
  S. 1136. A bill to amend the Internal Revenue Code of 1986 to provide 
that an organization shall be exempt from income tax if it is created 
by a State to provide property and casualty insurance coverage for 
property for which such coverage is otherwise unavailable; to the 
Committee on Finance.


  exemption from income tax for state created organizations providing 
                    property and casualty insurance

  Mr. MACK. Mr. President, today Senator Graham and I introduce 
legislation that would help protect Florida from economic devastation 
in the event of a catastrophic windstorm or other peril.
  Our legislation would amend Section 501(c) of the Internal Revenue 
Code to grant tax-exempt status to the Florida Windstorm Underwriting 
Association (FWUA), the Florida Residential Property and Casualty Joint 
Underwriting Association (JUA) and similar state-chartered, not-for-
profit insurers serving markets in which commercial insurance is not 
available. The FWUA and JUA are non-profit entities established by the 
state to provide property and casualty insurance coverage in those 
markets not adequately served by other insurers.
  In most years, Florida is not hit by a major hurricane or natural 
catastrophe. In those years, the FWUA and JUA take in more premiums 
than are paid out in claims or expenses. Since these entities are not-
for-profit, state law prevents those funds from being distributed--they 
are instead literally saved for a severely rainy or windy day. 
Nonetheless, the Internal Revenue Code requires 35% of those funds to 
be sent to Washington as federal income taxes rather than used to fund 
reserves. Designating the FWUA and JUA as tax-exempt will help Florida 
to accumulate the necessary reserves to pay claims brought on by a 
catastrophe. This bill gives the two Florida catastrophe funds the same 
tax-exempt status that is already enjoyed by a number of not-for-profit 
insurance provers.
  State law authorizes the FWUA and the JUA to assess property 
insurance policyholders throughout Florida to pay for losses generated 
by catastrophic storms or other perils. Thus, the benefits of the tax 
exemption would reduce the frequency and severity of assessments levied 
against individual policyholders. Greater funds would be available to 
cover losses which otherwise would be paid for by higher assessments on 
Florida policyholders--cutting taxes for the approximately 5,000,000 
property owners in the state of Florida.
  This legislation has the bipartisan support of the entire Florida 
Congressional delegation in addition to strong backing from Governor 
Jeb Bush, the State Insurance Commissioner, the Florida Senate 
President and Florida's House Speaker. And this change in the tax code 
would result in only a negligible loss of federal tax revenue, 
according to Joint Tax.
  Our legislation is extremely important to homeowners and businesses 
throughout the state of Florida, all of whom are subject to assessment 
if reserves are not sufficient to pay claims in the event of a severe 
hurricane or other catastrophe. With hundreds of miles of magnificent 
coastline, Florida remains sensitive to the perils of nature. Enactment 
of our legislation permits Florida to prepare for the next Hurricane 
Andrew while alleviating some of the economic hardship exacted on 
Florida property owners.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1136

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. EXEMPTION FROM INCOME TAX FOR STATE-CREATED 
                   ORGANIZATIONS PROVIDING PROPERTY AND CASUALTY 
                   INSURANCE FOR PROPERTY FOR WHICH SUCH COVERAGE 
                   IS OTHERWISE UNAVAILABLE.

       (a) In General.--Subsection (c) of section 501 of the 
     Internal Revenue Code of 1986 (relating to exemption from tax 
     on corporations, certain trusts, etc.) is amended by adding 
     at the end the following new paragraph:
       ``(28)(A) Any association created before January 1, 1999, 
     by State law and organized and operated exclusively to 
     provide property and casualty insurance coverage for property 
     located within the State for which the State has determined 
     that coverage in the authorized insurance market is limited 
     or unavailable at reasonable rates, if--
       ``(i) no part of the net earnings of which inures to the 
     benefit of any private shareholder or individual,
       ``(ii) except as provided in clause (v), no part of the 
     assets of which may be used for, or diverted to, any purpose 
     other than--
       ``(I) to satisfy, in whole or in part, the liability of the 
     association for, or with respect to, claims made on policies 
     written by the association,
       ``(II) to invest in investments authorized by applicable 
     law, or
       ``(III) to pay reasonable and necessary administration 
     expenses in connection with the establishment and operation 
     of the association and the processing of claims against the 
     association,
       ``(iii) the State law governing the association permits the 
     association to levy assessments on property and casualty 
     insurance policyholders with insurable interests in

[[Page S6068]]

     property located in the State to fund deficits of the 
     association, including the creation of reserves,
       ``(iv) the plan of operation of the association is subject 
     to approval by the chief executive officer or other executive 
     branch official of the State, by the State legislature, or 
     both, and
       ``(v) the assets of the association revert upon dissolution 
     to the State, the State's designee, or an entity designated 
     by the State law governing the association, or State law does 
     not permit the dissolution of the association.
       ``(B) Subparagraph (A) shall not apply to an association 
     for any taxable year if the association's surplus income for 
     such year exceeds 5 percent of the total insured value of 
     properties insured by the association as of the close of the 
     taxable year unless the association pays a tax equal to 35 
     percent of such excess for such year. Such tax shall be 
     treated as imposed by chapter 42 for purposes of this 
     title.''
       (b) Transitional Rule.--No income or gain shall be 
     recognized by an association as a result of a change in 
     status to that of an association described by section 
     501(c)(28) of the Internal Revenue Code of 1986, as amended 
     by subsection (a).
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1998.

 Mr. GRAHAM. Mr. President, as we prepare for next week's start 
of the 1999 Hurricane Season, I am pleased to join my colleague, 
Senator Mack, in introducing legislation that will help protect Florida 
from economic devastation in the event of a catastrophic disaster.
  Our legislation would amend Section 501(c) of the Internal Revenue 
Code to grant tax-exempt status to state chartered, not-for-profit 
insurers serving markets in which commercial insurance is not 
available. In our state, this legislation will primarily assist the 
Florida Windstorm Underwriting Association (FWUA) and the Florida 
Residential Property and Casualty Joint Underwriting Association (JUA).
  The Florida Windstorm Association was created in 1970. Twenty-two 
years later, in 1992, the legislature authorized the Joint Underwriting 
Association. These organizations operate as residual market mechanisms. 
They provide residential property and casualty insurance coverage for 
those residents who need, but are unable to procure through the 
voluntary market.
  The JUA was created in direct response to $16 billion in covered 
losses during Hurricane Andrew. The destructive force of Andrew 
rendered a number of property insurance companies insolvent. Other 
firms recovered from the catastrophe by withdrawing from Florida 
markets.
  During those fortunate years when we are not impacted by major 
hurricanes or other natural catastrophes, the FWUA and JUA take in more 
premiums that are paid out in claims and expenses. Florida law prevents 
those funds from being distributed so that needed reserves will 
accumulate in preparation for inevitable disasters.
  Unfortunately, the Internal Revenue Service penalizes Florida for 
this responsible, forward thinking practice. It requires that 35% of 
those funds be sent to Washington as federal income taxes rather than 
used to fund reserves. Designating state chartered, non profit insurers 
as tax-exempt will help Florida accumulate the necessary reserves to 
pay claims brought on by a catastrophe.
  State law also authorizes the FWUA and the JUA to assess property 
insurance policyholders for losses generated by natural disasters. Tax 
exemptions should reduce the frequency and severity of assessments 
levied against individual policyholders, because it would make more 
funds available to cover losses which otherwise would be paid for by 
higher assessments on policyholders.
  Mr. President, even seven years later, Hurricane Andrew is still a 
nightmarish memory for Floridians. The 1999 Hurricane season will begin 
on June 1, 1999. The National Weather Service expects this hurricane 
season--which begins next Tuesday, to be another active storm season. 
It is imperative that the federal government avoids the comfortable 
habit of ignoring lessons presented by Andrew and other recent 
catastrophes.
  This legislation has bipartisan support in the state's Congressional 
delegation. It is backed by our state governor, our insurance 
Commissioner, our state Senate President and House Speaker.
  Also, Mr. President, the Joint Committee on Taxation has ruled that 
this legislation will have a negligible effect on the federal budget.
  Our legislation is extremely important to homeowners and businesses 
throughout Florida, all whom are subject to assessment if reserves are 
not sufficient to pay claims in the event of a catastrophe. Florida 
remains sensitive to the perils of nature. Enactment of this 
legislation will permit our state to prepare for the next Hurricane 
Andrew while alleviating some of the economic hardship exacted on 
Florida property owners.
                                 ______